China's largest mobile handsets maker Huawei considers divesting stake to US private equity firms

20 June 2008

Leading private equity firms are reported to be finalising their first round bids to acquire a major stake in the mobile devices division of China's biggest phone-network equipment maker, Huawei Technologies Co, which  is considering divesting a major stake in its handset unit, which makes customised handsets for the world's largest mobile operator, Vodafone Group Plc.

Telecom firms AT&T and Vodafone have also been named as potential bidders for the hand sets unit.

In 2007 the entire mobiles business of Huawei accounted for 16.4 per cent of the company's sales (up from 11.8 per cent in 2006) 46 per cent of which came from sales of 18 million handsets. It won its first contract outside mainland China from Hutchison Whampoa in 1996.

The 100-per cent emplyee owned Shenzhen-based Huawei, which has become a global player in telecoms equipment manufacturing, has retained the services of investment banker Morgan Stanley as financial adviser to explore opportunities with private equity firms for working out a partial disinvestment of the handsets business.

It has invited bids from around 20 leading private equity firms including Bain Capital LLC, Blackstone Group LP, TPG Inc., Kohlberg Kravis Roberts & Co., Warburg Pincus LLC and Carlyle Group, to put in a bid by 23 June.

Though Huawei is ready to divest up to a 49-per cent stake in its handsets business, it  may consider ceding majoriy control in exchange for a "control premium", for its handsets business, a highly competitive low-margin field that is being increasingly dominated by Nokia and Samsung, that forced  China's Lenovo Group to sell its handset unit for $100 million in February.  Nokia has a 39.6 per cent of the global hand sets market and samsuung around 15.6 per cent.